Pay cuts: big sharks snacking on small fry

I’m disturbed about the Government employees’ pay cuts and the way they are planned. It’s obvious to me that the big sharks are planning to snack on the small fry.

Five per cent-vs-15 percent

Bermuda’s Trades Union Congress [TUC] consists of all Bermuda’s trades unions. Every Government employee is either in or attached to the TUC. Currently, the TUC is saying that its members are willing to take one day off without pay, every month, to help reduce Personnel Costs. In round figures, that one day off equates to a 5% cut in pay.

A 5% cut in pay, is less than the fifteen percent (15%) minimum cut that, in 2013, has now become necessary*. 

Pay cuts will not be restored

A very important point that most people are missing, is that any pay cut this year will not be restored within the next four to five years. A mere 5% cut this year will also mandate a series of additional and future 5% cuts until Spending matches Revenue. It’s either one big effective cut now, or ‘death by a thousand cuts’ over the next three to four years. Ultimately, Personnel Costs must come down by at least fifteen percent. (You can review my analysis of that situation in the Bermuda Sun article published July 10, 2013.) 

The consequence of 5% flat rate pay cuts

Here is the effect of the proposed one day off a month - five percent (5%) - proposal. Examine it carefully. 

For a top Civil Servant [BPSU] making $204,775 a year ($17,065 a month, $3,938 a week, $787 a day), that 5% pay cut means that his monthly pay drops from $17,065 down to $16,278 – before taxes etc.

With $16,278 still left to spend, there’s no need to cut down on fuel for the BMW, cruises and clothes, or entertaining and eating out. Belco bills were never a problem anyway. When you go from earning $17,065 a month to $16,278 a month, you hardly notice.

For a blue collar worker [BIU] making $51,000 a year ($4,250 a month, $981 a week, $196 a day), that 5% pay cut means his monthly pay drops almost $200 from $4,250 to $4,054 – before taxes etc.

But a $200 a month drop in pay when your Health Premium has risen, your Belco bill is due, your rent or mortgage is coming up, and your ten year-old car needs a paint job to get through TCD, has a big impact.

Saying that it is fair for everybody to take the same 5% hit makes an excellent intellectual argument. But it is a bad practical argument.  Lower down the pay scale, that 5% hits harder and harsher.

Very simply, the $100,000 to $200,000 a year Civil Servants are riding on the backs of the middle and lower paid white and blue collar workers in the TUC. That this 5% flat rate pay cut proposal has gone this far tells me that one of two things has already happened.

Either the hundreds of $100,000 a year plus Civil Servants who support this plan are so cynical or so bright and can easily fool the lower paid white and blue collar people – or – the small fry lower paid white and blue collar workers are so ignorant and so easily bamboozled that they can easily be taken advantage of and will suck up and digest any mathematical mush slapped down in front of them. 

Layered pay cuts

The best solution to the Personnel Cost cut need is one-time layered pay cuts. These pay cuts will have to remain in place until GDP gets back up into the $6.1bn - $6.2bn range.

People at the top earning between $204,775 and $150,000 a year should take a 30% hit. They won’t starve on $143,343 to $105,000 a year. People between $149,000 and $120,000 can drop 25%. They’ll still pick up between $111,750 and $90,000 a year.

For people between $119,000 and $90,000 a year, a 20% cut drop them to $95,200 to $72,000 a year. Cut 15% for people between $89,000 and $70,000 who’ll go to $75,650 and $59,500. Cut 10% for people between $69,000 and $60,000 who’ll end up between $62,100 and $54,000. 

Workers earning between $35,000 and $59,000 absorb a 5% cut. They’ll have to live on something between $33,250 and $56,050.

These one-time layered cuts will come very close to achieving the necessary fifteen percent reduction in Personnel Costs.

Sharks and small fry

It is grossly, almost obscenely, unfair for the blue uniformed blue collar workers sweating it out in the hot sun to be forced to pay the same long term price as the $200,000 a year Civil Servants who, over nine years, kept supporting the financial decisions that resulted in Debt growing fourteen times (1,400%) in those nine years.

Government’s massive Debt build-up created this need for these now unavoidable Government Personnel Cost cuts. The Debt build-up happened because of the continuing series of decisions and non-decisions made by top Government people – those $200,000 a year people and the politicians that they advised. 

Right now, it looks like the big sharks are getting ready to snack on the unsuspecting and so easily misled small fry. 

*One. It was in December 2010 that I first wrote that Government Personnel Costs needed to be cut. In December 2010, I said costs needed to come down by 10%. It is now July 2013. Two. I have never suggested mass firings or layoffs of Government employees.